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Manage your money before it manages you.

By Jean Chatzky | It’s an interesting—and tough—series of questions: Do you have to be rich to be happy? Would being richer make you happier? Does money buy happiness?

If you’re like most people, you came up with some very strong gut answers.

You either thought, Of course I’d be happier if I was richer. If someone handed me $10,000 on a street corner, I’d be delighted. Wouldn’t you?

Or you thought, Don’t be ridiculous. I have a spouse (significant other) and kids I love. I have a challenging job that I really enjoy. I have great friends. Money can’t buy any of these things.

In both cases, you’d be right. And you’d be wrong. Why? Because, it turns out, these are not simple yes or no questions. Rather, they are very complicated issues that some of the world’s top economists, sociologists, and psychologists have spent decades studying. 

And at the end of the day, this is what we know for sure: Money can’t buy the sort of happiness you and I are looking for.

To persons in a developing country a little extra money absolutely can bring happiness. An extra $100 or $1,000 means they can eat every day. It means they can afford a warm place to sleep or an electric fan to drive off the heat.

But in wealthier, developed countries like the United States, that extra $100 or $1,000—even $10,000—isn’t going to vastly improve your life. Maybe it will buy you that new pair of shoes you saw in the window at Bloomingdale’s. Maybe it will cover a plane ticket to somewhere warmer and sunnier than you happen to be right this minute. It might put a short-lived smile on your face. But will it buy you lasting happiness? Not a chance.

On the other hand, studies over the years have shown that money bears the ultimate responsibility for many of life’s problems.

Divorce? Money is the number one cause of splits.

Fights in a marriage? Even during the first year of marriage money spats are the number one cause of strife. 

Health problems like depression? Alcoholism? Addictions to drugs and gambling? Check, check, and check. 

How is it that while money is responsible for only a relatively small piece of your overall happiness, it can rob you of happiness so completely? Two reasons.

The first is that the five top variables involved in happiness—relationships, self-esteem, job satisfaction, health, and money—are highly interrelated. And money, when it’s working against you, can set up a particularly large roadblock to achieving a feeling of wellbeing in any of the other areas. 

The second—and probably more important—reason is that, despite the fact that income can produce only a small piece of happiness, most of us believe it has the power to do much more. 

When we chase money, we lose the opportunity to focus on the relationships, health, and work satisfaction that could reward us with a huge upward swing in happiness.

If money is the master and you’re the slave, it becomes a big drain on your overall life. Unfortunately, our research shows one in five of you feels precisely that way. But if you’re at the controls then you can use your money to your best advantage, to add to your happiness and quality of life. So what do you have to do?

You can start by following these 10 Commandments of Financial Happiness:

1.Thou shalt get “pretty” well organized. Don’t raise your eyebrows at me. I want you to understand you have a little wiggle room here. You don’t have to hire a professional organizer or spend a mint at the Container Store. You just have to come up with some sort of system that you understand, so that if you have to put your fingers on an important piece of paper, you can do it quickly and without hassle. 

2.Thou shalt pay bills as they come in rather than all at once.Do it in bits and pieces, and it’s far less overwhelming in terms of time—and your bottom line. Set up a bill payment center (which can be as simple as an in-and-out box) where you open the mail. Equip it with stamps, pens, your checkbook, and any other accoutrements you need, and get yourself in the habit of opening the bill, writing the check, stamping the envelope, putting the envelope in the stack of mail that goes out tomorrow, and recording the transaction in your checkbook. The bill itself goes back in the original envelope and into a stack to be filed. That you can do once a month.

3. Thou shalt keep tabs on your cash. If you feel that money evaporates out of your wallet and you don’t know where it goes, you’re more likely to be unhappy. What’s the best way to prevent this from happening? Personally, I save receipts. But you can also start the day with a certain amount of cash ($20 or $40) and try to live within those limits. You can put yourself on a regular schedule of ATM withdrawals, take out a certain amount of cash for an entire week, and put only a fraction of it in your wallet each day. And you can balance that checkbook regularly; our research shows that people who do are happier. 

4. Thou shalt save at least five percent of your household income. There is a pretty powerful relationship between saving and investing at all and being happy with your finances. But manage to put away at least five percent of your income and the strength of that relationship soars. The easiest way by far is to do something to get that five percent out of your hands before you have the opportunity to spend it. Elect to have at least five percent of your pretax income funneled into a 401 (k). Or set up a series of automatic transfers that take five percent of your income out of checking each month and into an IRA or other tax-advantaged investment account. The bonus: Once you find you’re able to save five percent a month, the accumulation in your account will provide some serious encouragement to do more.

5. Thou shalt protect your family (and yourself). Doing all you can to shelter your family (and yourself) from financial hardship in the future is also an important part of financial happiness. Once you’ve amassed an emergency cushion, written a will, and purchased life insurance, you no longer have to worry every time you get on a plane, for example. In fact, our research shows, once you’ve taken those precautions you stem the worry tide. Note: For singles, in particular, disability insurance is crucial.

6. Thou shalt minimize credit-card debt. Interestingly, having a very low level of total debt (including mortgages, car loans, home-equity loans, etc.) doesn’t make us happier. We understand that in today’s society, affording a house, car, or home renovation means taking on debt in these forms. As long as we’re not spending more than we can afford on these large items, they don’t stress us out. Credit-card debt, however, is a totally different animal. If you can rid your life of revolving credit-card debt, there’s a good chance you’ll be happier financially, and therefore happier overall. 

7. Thou shalt do unto others. Volunteering or donating money or even giving away old belongings has the ability to add to your own personal happiness. 

8. Thou shalt spend sensibly. That double decaf skim latte may make your stomach sing as it’s going down, but if you can’t afford it, it’ll give you a headache later. You first need to understand the specific items sabotaging your ability to live within your means. Need an example? I spent an exorbitant amount of money on (gulp) my hair. Twice a week I’d have it professionally washed and blown straight. I justified it because these trips were relatively inexpensive ($30) when you looked at them one by one. I told my inner wallet that since I was going on TV, my hair needed to look good. And then I added it up: $30 twice a week, 52 weeks a year, equals $3,120. Whoa! I was horrified. So I started looking for a solution. And $110 later I found it in the form of a top-of-the-line flat (straightening) iron. I use it so often I burnt the first one out after two years and had to invest in a second. But it’s been worth it. I’ve saved more than $6,000. How? By not spending it.

9. Thou shalt start working toward your goals. Attaining happiness is not a matter of having achieved your goals, but a matter of making progress. If you’re at least halfway to your goals you’ve got a much better shot at happiness than if you’re just meandering toward your goals—or worse, if you haven’t set goals at all. 

10. Thou shalt communicate. Constantly fighting with your spouse or partner about money is a drain on happiness. How do you sidestep this thorny issue? Involve each other in your spending and borrowing decisions. Borrowing money without notifying the other first (and that’s precisely what you’re doing when you put a purchase on a credit card) and spending more on something than was agreed upon are both highly tied to financial unhappiness.

And one for good luck: Thou shalt try not to be consumed with a desire for more. The first 10 commandments are behavior-oriented. This one requires an attitude adjustment. It asks that you focus on enjoying the life you’ve already been able to achieve—from your family and friends to the clothes in your closet and car in your garage. Remind yourself that wanting more doesn’t breed contentment, it breeds more wanting. 

People at all income levels who have managed to adopt about half of these habits are significantly happier with their finances—and therefore, their lives—than those who have adopted fewer.

Why? Because income is just a starting point. Your happiness doesn’t hinge on how much you make. Your happiness hinges on how you handle it.

Jean Chatzky C’86 is the financial editor for NBC’s Today show. The above excerpt is reprinted from You Don’t Have To Be Rich: Comfort, Happiness, and Financial Security on Your Own Terms by Jean Chatzky by arrangement with Portfolio, a member of Penguin Group (USA) Inc., Copyright © Jean Chatzky, 2003. The book will appear in paperback, retitled, The Ten Commandments of Financial Happiness, in December. Another book, due out in September, is Pay it Down: From Debt to Wealth on $10 a Day (Portfolio/Penguin Group).

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